Alternative model for area price determination in a deregulated power system

The area price model used by Nord Pool in the Nordic day ahead market, is an option for other restructured power systems, including the future European spot market for electricity. However, improvements in the methodology for area price determination are needed to make the model suitable for the more meshed and complex power system in Continental Europe. An alternative methodology, where power flow calculations are included, is proposed in this paper. The proposed methodology is based on a combination of nodal and area pricing, and the criterion of optimization is minimization of the total (socio-economic) congestion costs. This paper describes the method and the implementation in a prototype simulation model. Case studies have shown that the proposed model has the potential to reduce socio-economic congestion costs in the Nordic system and to reduce maximum price differences between areas. This means that the transmission system utilization is improved, and the market player risk with respect to area prices is reduced.